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Why Yum China Holdings Inc. Stock Plummeted Wednesday

Pizza Hut is weighing on Yum China's growth story.

What happened

Shares of Yum China(NYSE:YUMC) took a big hit Wednesday, falling as much as 15.5%. At the time of this writing, the stock is down about 13.3%. The stock's decline follows the company's first-quarter earnings release yesterday. The quarter included better-than-expected earnings but highlighted a challenging environment for Pizza Hut, which saw its same-store sales fall during the period.

Investors may be concerned that Yum China will continue to face challenges with revitalizing Pizza Hut.

So what

Yum China's total revenue increased 15% year over year, from $1.9 billion in the year-ago quarter to $2.2 billion. Excluding the impact of foreign currency changes, revenue was up 6% year over year. Meanwhile, Yum China's adjusted earnings per share increased to $0.53 -- up from $0.52 in the year-ago quarter and above a consensus analyst estimate for adjusted earnings per share of $0.49.

Image source: Getty Images.

KFC continued to be a solid performer for the company during Q1, posting 9% year-over-year growth in system sales and 5% year-over-year growth in same-store sales. But Pizza Hut faced headwinds with customers as system sales for the brand fell 1% and same-store sales fell 5%. Since Yum China is actively investing in Pizza Hut in an effort to reverse its declining sales in the brand, the combination of lower sales and higher investment input meant Pizza Hut's operating profit fell 58% year over year.

Now what

Yum China says it has learned lessons from its "bold trials" with Pizza Hut and that it is "committed to the revitalization" of the important restaurant brand. During the company's earnings call, Yum China CEO Joey Wat said, "Some of the challenges we are currently experiencing [at Pizza Hut] will eventually be alleviated as we continue to make efforts to rejuvenate this brand."

Author

Daniel Sparks is a senior technology specialist at The Motley Fool. He served in the U.S. Army on active duty and graduated with an MBA from Colorado State University. Follow him on Twitter for updates.
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